What Is Optimum Director’s Salary 2025/26

By Author: GoForma
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The 2025/26 tax year is set to bring a mix of challenges and opportunities for company directors, especially in light of the October 2024 Budget update.

With the Employer’s National Insurance (NI) threshold taking a significant dip, many directors are left pondering: What is the optimum directors salary 2025/26?

In this article, we’ll dive into the key changes, tax thresholds, and salary strategies that can help you keep more of your hard-earned cash while ensuring you stay compliant.

What’s New in the 2025/26 Tax Year?
One of the biggest changes for directors is the reduction of the Employer’s NI threshold from £9,100 to £5,000. Starting in April 2025, companies will be required to pay 15% NI on any salaries exceeding £5,000, unless they qualify for the Employment Allowance.

This shift will influence how directors decide to structure their pay — particularly for those who lean towards a low-salary, high-dividend approach to minimize tax.

Therefore, determining the best salary for directors in 2025/26 will involve striking a careful balance between personal allowances, corporation ...
... tax savings, and NI liabilities.

Why Paying Yourself a Salary Still Matters
Many directors opt for a low salary supplemented by dividends. While this strategy is still a wise choice, completely forgoing a salary could have negative consequences down the line. Here’s why maintaining a salary is still important:

It allows you to make the most of the full Personal Allowance (£12,570)
It qualifies you for state pension credits (as long as it’s above £6,500)
It helps lower the company’s corporation tax bill
It keeps your NI contributions manageable if set up correctly
Even if dividends are your primary source of income, having a basic salary can keep your financial situation efficient and compliant.

Key Tax Thresholds Directors Should Know
To pinpoint the best salary for directors in 2025/26, it’s essential to grasp the thresholds that will affect your pay structure:

Personal Allowance — £12,570
Lower Earnings Limit (LEL) — £6,500
Employer’s NI Threshold — £5,000
Employment Allowance — £10,500 Offsets Employer NI (if eligible)
Dividend Allowance — £500
Optimum Director’s Salary 2025/26
1. If You’re the Sole Director with No Other Employees
As the only person on the payroll, you have three salary options, each with different tax implications:

Option 1: £5,000 Per Year (£416.66/month) — Lowest admin, no NI benefits
This option keeps things simple and avoids both Income Tax and National Insurance. However, you won’t earn a qualifying year towards your state pension, and the Corporation Tax relief is minimal compared to previous years.

Option 2: £6,500 Per Year (£541.66/month) — Maintains NI record
This salary hits the Lower Earnings Limit, helping you build your NI record without triggering employee NI. Your company will pay a small Employer’s NI contribution (around £225 annually), and the Corporation Tax relief is slightly reduced compared to higher salaries.

Option 3: £12,570 Per Year (£1,047.50/month) — Most tax-efficient (Recommended)
This option uses your full tax-free personal allowance and secures a qualifying NI year. Although your company will pay higher Employer’s NI (around £1,135.50), the Corporation Tax relief more than offsets the cost. This is the best choice for maximising savings.

2. If Your Company Has 2 or More Employees or Directors
When your company employs two or more people — including directors — you can take advantage of the Employment Allowance, which covers the first £5,000 of Employer’s NI contributions.

This means that:

Each director can earn £12,570 per year (the full personal allowance)
The Employer’s NI up to £5,000 won’t need to be paid
You benefit from full tax relief and build your NI record
So, if your company qualifies for Employment Allowance, the most tax-efficient director’s salary is once again £12,570 per annum.

What About Dividends?
Once your salary is established, dividends can be a great way to boost your income while keeping taxes in check. They come from profits after corporation tax, and the tax rates on them are generally lower than those on salary.

Here’s a quick rundown of how dividend tax works for the 2025/26 tax year:

The first £500 of dividend income is tax-free.
You’ll pay 8.75% on dividends that fall within the basic rate band.
If you’re in the higher rate band, the tax rate jumps to 33.75%.
For those in the additional rate band, it’s 39.35%.
By balancing a modest salary with dividends, you can lower your National Insurance costs and take full advantage of the tax bands available to you.

Read more at, https://www.goforma.com/tax/optimum-directors-salary

Finding the most tax efficient salary for limited company director in 2025/26 goes beyond just minimising tax payments. It’s really about maximizing your business income, staying compliant with HMRC regulations, and ensuring you’re set up for long-term financial stability.

If you’re feeling uncertain about what’s best for your circumstances, it’s a good idea to consult with a limited company accountant. A little expert guidance now could save you a significant amount down the line.